How to do Income Tax Calculation for FY 2020-21? Which Tax Structure to Choose?

Here is the answer to these inquiries!

According to Budget 2020, you cannot claim any tax deduction or exception if you plan to opt for a new tax structure. Along these lines, as an individual taxpayer if you opt for the new tax regime with lessening tax rate you need to forgo all tax breaks available today. Fortunately, you have the option to proceed with the old tax structure. A salaried individual can switch among old and new tax structure.

Firstly, we will talk about which tax deduction and exception you need to forgo in case you opt for new tax structure with diminishing the tax rate. Secondly, we will take a few experiments and do income tax calculation for FY 2020-21 to realize which tax structure to choose?

Rundown of Tax Deductions and Exclusion not allowed in new Tax Structure

1 Tax Deduction Under Section 80C ( But If you Opt-in as Old Tax Regime you can get this benefit)

The most popular tax deduction of 1.5 Lakh under section 80C isn't applicable for new tax structure. This means you cannot claim any benefit for the speculation made in the instruments, for example, PF, PPF, Life insurance premium, school education costs of kids, ELSS, PPF, NPS and so on.

You can claim deduction under section 80CCD for the employer commitment on account of an employee for NPS. 

2 Tax Deduction Under Section 80D ( But If you Opt-in as Old Tax Regime you can get this benefit)


No tax deduction is allowed for the medical insurance premium and preventive health test under section 80D for new tax structure.

3 No LTA Benefits But if you Opt-in as Old Tax Regime you can get this benefits

For new tax structure LTA – Leave travel allowance exclusion which is currently available to a salaried employee for twice in a square of four years isn't allowed.

4 HRA Exemption U/s 10(13A) ( But If you Opt-in as Old Tax Regime you can get this benefit)

HRA is house lease allowance. HRA is paid to salaried individuals by an employer as a part of a salary. The earlier taxpayer was able to claim HRA up to a certain cutoff. In a new tax structure, it isn't admissible.

5 Standard Deduction ( But If you Opt-in as Old Tax Regime you can get this benefit)


A standard deduction benefit of Rs.50000 currently available to the salaried taxpayer isn't applicable in new tax slab.

6 Section 80TTA Benefits ( But If you Opt-in as Old Tax Regime you can get this benefit)


Section 80TTA gives a deduction of Rs.10000 on intrigue income. On a new tax regime, this benefit isn't available. ( But If you Opt-in as Old Tax Regime you can get this benefit)



7 Section 80DDB Benefits ( But If you Opt-in as Old Tax Regime you can get this benefit)


Benefits for disability under section 80DDB up to Rs.40000 not available in case you are planning to opt for new diminished tax structure.

8 Section 80E Education Loan ( But If you Opt-in as Old Tax Regime you can get this benefit)


Tax break reasonable on the intrigue paid on education loan won't be, claimable under section 80E.

9 Section 80G of Donation ( But If you Opt-in as Old Tax Regime you can get this benefit)


You had the option to make a donation under section 80G and claim income tax benefit of equivalent amount. The said deduction isn't available in the diminished tax structure.

10 Section 24 Home Loan Intrigue ( But If you Opt-in as Old Tax Regime you can get this benefit)


Under section 24 of the Income-tax Act, an individual was able to claim a tax deduction on the intrigue payment on the lodging loan up to a maximum amount of Rs.200000. This benefit isn't expanded if you opt for a new tax structure.

To put it Old Tax Regime, all deduction applicable under chapter VIA like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, and so on) won't be claimable by those opting for the new tax regime.

Presently how about we calculate actual tax the benefits by doing Income Tax Calculation and comparing both the tax structures in various cases.

Case 1 – Salaried Individual claiming regular deduction (80C,80D) and Home Loan Benefits

In the first case, I will take an example of a salaried individual with an income of 20 Lakh and 10 Lakh. How about we consider in both the cases individual takes benefits of standard the deduction Rs.50000, deduction of Rs.1.5 Lakh under section 80C, Rs.25000 under section 80D and Enthusiasm on a home loan up to Rs.200000.

Presently two options are available to the salaried individual. First, he/she can opt for old tax structure with all above deduction or he/she can forgo all deduction and opt for new diminished tax structure.

If an individual has an annual income of 20 Lakh and old tax structure has opted with tax deductions. Applicable tax is 2.85 Lakh. If a new tax structure is adopted applicable tax amount is 3.37 Lakh. Similarly, if annual income is 10 Lakh and old tax structure is adopted applicable tax is Rs.27500. For a new tax structure, the applicable tax is Rs.75000. The calculation is given beneath.
Gross Income Rs/-
Tax as per Old Tax Structure Rs/-
Tax as per New Tax Structure Rs/-
Additional Tax Saving Rs/- / Payable
7.5 Lakh
18200
39000
-20800
10 Lakh
70200
78000
-7800
12.5 Lakh
124800
130000
-5200
15 Lakh
202800
195000
7800
20 Lakh
358800
351000
7800


Case 2 – Salaried Individual claiming basic deduction under section 80C, 80D and Standard Deduction

In the subsequent case how about we assume that salaried individual is taking full benefits of section 80C, 80D and standard deductions as of now. Under a new tax regime, these deductions are not applicable. Assume the income level of an individual is 10 Lakh. If the old tax regime is chosen payable tax is Rs.70200 then again if the new tax regime is chosen payable tax is Rs.78000.

Gross Income Rs/-
Tax as per Old Tax Structure Rs/-
Tax as per New Tax Structure Rs/-
Additional Tax Saving Rs/-
7.5 Lakh
54600
39000
15600
10 Lakh
106600
78000
28600
12.5 Lakh
179400
130000
49400
15 Lakh
257400
195000
62400
20 Lakh
413400
351000
62400


Conclusion

From the above cases example, clearly in the vast majority of the cases, old the tax rate with deduction offers higher tax benefits. The new diminished tax rate is beneficial only if you are not claiming any deductions as of now. (which is very rare)

If you have a home loan and higher income you will get higher tax benefits in the old tax rate compared to a new tax rate.
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